As in the last several years, the Ministry of Finance held a jornadas orçamentais workshop (formerly called "Yellow Road") on 16 May 2016. The discussion covered program and budgeting for 2017, including national priorities and the fiscal envelope. La'o Hamutuk and other civil society groups were not invited, although some journalists did attend. LUSA wrote three articles about the workshop (Tetum), reporting that the proposed fiscal envelope for 2017 will be $1.2 billion. Unlike in past years, none of the materials have been posted on government websites, but La'o Hamutuk has obtained and scanned most of the Ministry of Finance presentations (Tetum).

On 24 May, the Ministry of Finance presented five scenarios to the Council of Ministers for the fiscal envelope for 2017. Although the Government press release doesn't report the size of the budget to be proposed, local media reported the Secretary of State for the Council of Ministers as saying it will be $1.0 billion, or perhaps $1.2 or $1.3. On 7 June the Council of Ministers continued the discussion.

In June and July, Government and Parliament revised the current year (2016) budget, adding $391 million to pay for Tibar Port, the Suai Supply Base and other infrastructure megaprojects. Although the money added to the 2016 budget includes some of what had originally been planned to be spent in 2017, it is unclear whether the fiscal envelope for 2017 was reduced in response.

The Prime Minister's office made a presentation (Tetum) on the budget cycle to the NGO Forum on 13 October. Although it's not clear from the slides, everything on the first 14 slides is done behind closed doors, with no transparency or public participation. Mid-October, when the Budget proposal has already been approved by the Council of Ministers and is presented to Parliament, is the first time its specifics are made known to citizens or civil society.

The Ministry of Finance submitted the proposed 2017 budget law to Parliament on 13 October, asking for total appropriations of $1,386,826,000, 11% lower than the original (pre-rectification) 2016 budget. Actual spending (execution) is always less than the appropriated amount, and the proposed 2017 budget is more than Timor-Leste has ever spent in a single year (total 2016 spending is not yet known). LUSA reported a few more details (original Portuguese).

La'o Hamutuk scanned the proposed budget law, as well as the Prime Minister's explanation of why he wants to withdraw $597 million more than the Estimated Sustainable Income of $482 million from the Petroleum Fund (both in Portuguese).

The Parliamentary secretariat distributed budget materials to Members on 18 October, along with this explanation (Portuguese).

As has been the case in every budget since the one proposed for 2014, the proposed 2017 budget expects less money from future oil revenues than was previously anticipated. The 2016 budget expected to receive $1,720 million from Bayu-Undan and Kitan between 2016 and 2022, but the proposed 2017 budget only anticipates half that amount ($867 million) during the same period, mostly in 2016 and 2017.

Petroleum Fund withdrawals are slightly reduced in 2017 from the all-time high in the 2016 rectification budget, although they are still more than double the Estimated Sustainable Income. However, budget plans for 2018-2021 return to high withdrawal levels, and the Fund's balance at the beginning of 2021 will be $4 billion less than its $17 billion peak in mid-2015.

Education spending continues to decline, as it has since 2014. Agriculture is also down slightly, although health receives a little more money than last year. Some planned infrastructure spending had been shifted from 2017 to the 2016 rectification budget, so the annual rate of infrastructure spending in 2016-2017 is higher than it has been since 2013, even though 2017 by itself is lower.

Parliament circulated a calendar (Portuguese) for their consideration of the budget. Committee hearings begin on 26 October and run through 8 November. Parliament will hold a seminar on 9-10 November, and all Committee reports will be finalized by 21 November. General debate will take place on 22-24 November, with debate on specifics from 25 November until global approval on 9 December.

On 27 October, the Petroleum Fund Consultative Council hosted an all-day conference on the Petroleum Fund. La'o Hamutuk has posted presentations by TimorGAP, the Ministry of Finance, the Central Bank and the National Petroleum and Minerals Authority (ANPM). Although the financial people are coming to grips with the imminent end of oil revenues, presenters from the petroleum sector continue to dream of "up to 6 billion barrels" of unexploited oil and gas reserves, which could provide $40 billion more in upstream petroleum revenues to Timor-Leste over the next 25 years. However, as La'o Hamutuk has shown, these are in areas which have already been explored by oil companies and given up as unviable projects (except for Greater Sunrise which is pending resolution of the dispute with Australia), and the remainder could be worth nothing at all.

On 28 October, Parliament Committees C and D held a hearing with the Minister of Petroleum and Mineral Resources (MPRM) and the agencies under his supervision. We are posting scanned presentations from MPRM, EITI, ANPM, TimorGAP and the Institute for Petroleum and Geology (IPG). They propose to double the state subsidy to TimorGAP from $6 million in 2016 to $11.9 million in 2017. Many members of Parliament asked heated questions, but there was not time for the Minister's team to answer them, and later provided answers in writing.

On 18 November, Parliament approved a process and agenda for plenary consideration of the 2017 budget law. Debate in generality will take place on 23-25 November. From 30 November to 3 December, a closed-door ad hoc committee will consider proposed amendments, followed by plenary debate on the specifics, which will conclude on 14 December.

The Prime Minister divided proposed expenditures into recurrent (for functioning of the state machinery) and capital. He said that capital expenditures include the budget categories of Development Capital and Public Transfers, which he said are to be invested to support economic diversification and job creation. He explained that "front-loading" for capital expenditures -- taking more than the sustainable amount from the Petroleum Fund -- is justified because they will produce social, economic and financial returns in the medium and long term.

However, very little of the $421 million in Public Transfers (the largest category, comprising 30% of the entire budget) is being spent on things which produce returns over the medium or long term:

On 5 December, after considering about 80 proposed amendments behind closed doors, the Eventual Committee issued its report (Port. original) and a Single Substitute Text (Port.) combining the Budget and Social Security laws. They accepted only about 25 of the proposed amendments, after rejecting 6 as redundant and refusing to consider 23 which would have modified the Infrastructure Fund, reduced capital spending, increased the budget envelope, or reduced appropriations for legal services, tax reform or external audit.

On 28 December, the President promulgated the budget and sent a message to Parliament, suggesting once again that Timor-Leste should not overspend its Petroleum Fund but should invest more in education, justice and people's living conditions, rather than large infrastructure projects.

The proposed new budget increases appropriations for 2017 from $1,387 million in the original 2017 budget to $1,610 million. The $223 million in additional spending, combined with $13m in savings, will pay for:

$ 36.1m for salaries and pension, some goods and services, and TL Cement

$ 0.4m for new structures of the new Government.

See below for details of the largest line items. Total appropriated expenditures by category are as follows:

Category

Original

Rectification

Salaries & wages

209.7

216.3

Goods & services

395.0

463.8

Public transfers

421.0

421.4

Minor Capital

12.1

12.6

Development Capital

349.0

495.8

Total

1,386.8

1,609.8

Using newer information on petroleum revenue and returns on investing the Petroleum Fund, the rectification budget expects Timor-Leste to receive $1,558m from these sources this year, up from $1,106m in the original 2017 budget. Although the Estimated Sustainable Income remains unchanged, this increased revenue makes it possible to withdraw $223m more from the Fund without diminishing its balance. The rectification budget uses the same figures for domestic revenues and borrowing as the original 2017 budget, and makes no estimates beyond 2017.

La'o Hamutuk compared its tables with the enacted 2017 budget and identified the following as the largest increases in expenditures this year:

$146.7 million (a 66% net increase) in non-borrowed money spent through the Infrastructure Fund. The increase includes $76m for roads, $25m for electricity infrastructure, $35m more for the South Coast Highway, $14m for Suai Airport, and $8m for bridges. (These add up to more than the total because other projects were cut.)

$ 37.8m (up 64%) for the Directorate-General for Electricity, for generator fuel for Hera and Betano

$ 7.0m (up 82%) for the Contingency Reserve, which can be spent on anything without additional Parliamentary approval

$ 6.6m (up 14%) for salaries in the Ministry of Education, mostly for primary school.

$ 5.8m for "Fast Customs Clearance," a new item under Whole of Government

$ 5.4m (up 135%) for the Counterpart Fund. The budget documents do not provide specifics, although this is probably to subsidize the private sector TL Cement project in Baucau.

$ 5.0m (up 146%) for the National Directorate for Hospital and Emergency Services, to pay past debts for overseas medical care.

$ 2.0m for "Payment of Timor Telecom," a new item under Whole of Government

The proposal also includes a few reductions (in addition to agencies which are eliminated in the new government structure), of which the largest are:

$ 5.5m (down 45%) for the Directorate-General for water, sanitation and urbanization

$ 4.3m (down 85%) for Dili drainage system (due to delays in approval of the loan from China)

$ 5.2m (down 5%) for veterans pensions

$ 2.6m (down 71%) for education and health infrastructure

$ 2.1m (down 15%) for the 2017 elections

Orsamentu retifikativu husi Governu foun

On 15 November, Parliamentary Committee C (Public Finances) recommended not to consider the rectification budget under an expedited process for reasons which have little to do with the substance of the proposal. The plenary agreed on 20 November, as announced by Government and Parliament. On the same day, the majority opposition introduced a Censure (no confidence) Motion into Parliament because the government had not resubmitted its program within 30 days after it was rejected the first time.

Also on 20 November, President Lu-Olo promulgated Decree-Law 35/2017, the organic law describing the structure of the 7th Constitutional Government.

The normal budget debate process in Parliament takes more than a month, and discussions on the rectification budget are being delayed by parliamentary maneuvers on both sides. Parliamentary President Aniceto Guterres is not invoking plenary sessions because he doesn't want to debate the no confidence motion or a subsequent motion to remove him as President, while the majority opposition is boycotting Committee meetings, preventing the presence of a quorum.

The State Budget for 2018 was not enacted before the year began. According to Article 31 of the Budget and Financial Management Law, the state can function without an enacted budget under a "duodecimal regime" in which 1/12 of each line item appropriation in the 2017 budget can be spent during each month of 2018. The law does not consider a change in government structure, as has just taken place. On 6 December, the Council of Ministers sent Parliament a proposed amendment to the Budget and Financial Management Law which would include revenues in the duodecimal system; the Ministers also discussed the proposed fiscal envelope for the 2018 budget.

The Minister of Finance presented the 2017 budget rectification proposal to Committee C on 11 December, as well as publishing two Budget Books on its website. However, on 12 December the Committee voted down the proposal by a 6-5 vote. The majority opposition said that the rectification budget should not be discussed before the government program is approved, and that the focus should be on the budget for 2018.

However, Parliamentary President Aniceto Guterres scheduled the rectification budget for plenary debate on 14 December, but on that day he postponed it until the following week due to security concerns. On Monday, 18 December, Parliamentary leaders decided not to take up the rectification budget first, but the President scheduled it for the next day, to be followed by discussion of the motions of no confidence and to dismiss the President.

On 19 December, following a seven-hour debate, Parliament approved the opposition's appeal of President Guterres' decision to schedule the rectification budget, effectively killing the proposal. They vote was 35-5, after most of the Fretilin and PD Members walked out.

Parliament recessed until 8 January, and no plenary session was called before the President dissolved Parliament on 26 January. New elections will be held on 12 May. Parliament never acted on the rectification of the 2017 budget or on the State Budget for 2018, which is unlikely to be enacted before August.

Until then, Article 31 of the Budget and Financial Management Law allows spending to continue according to a duodecimal system -- 1/12 of each 2017 budget line each month. In late February, the Ministry of Finance published Budget Books detailing duodecimal appropriations for January and February 2018, totaling around $100 million each month, and a press release announcing $104.6 million in appropriations for March. According to the Transparency Portal, monthly executed spending in January and February was about $60 million per month, but it rose to $86 million (including $8 million in loan disbursements) in March.

As discussed on our web page on the Petroleum Fund, we understand that more money cannot be transferred from the Petroleum Fund without a new Parliamentary law. La'o Hamutuk estimates that the state treasury, combined with non-petroleum revenues, can support government operations for four to six months. In May or June, the state will run out of money to cover operations, and it is unclear if a dissolved Parliament can authorize transfers from the Petroleum Fund. The Central Bank is not allowed to lend money to the Government, and the shortfall by August could be more than $100 million.

Update, 11 July: Although $70 million was transferred from the Fund in May, the cash flow problem became critical in July. La'o Hamutuk analyzed this issue and wrote a submission to Parliament about an over-broad legislative effort to address the emergency.

On 20 July, Parliament approved a law to authorize transferring $140 million from the Petroleum Fund to cover the period until a 2018 budget is enacted. La'o Hamutuk supported this legislation, as it did not revise any underlying laws. President Lu-Olo asked the Appeals Court for an advisory opinion before he promulgated the law on 10 August.

State Budget for 2018

Also on 20 July, the Council of Ministers approved a fiscal envelope of $1.353 billion ($1.218 bn without loans) for the 2018 State Budget, incorporating duodecimal spending which has already occurred. On 24 July, the Ministry of Finance released a Budget Circular and the presentation from a working session on enacting the 2018 Budget. After each Ministry refined its proposal, the CoM approved a proposed budget totaling $1.279.6 billion (including $62 million in loans and $44 million carried over from 2017) on 2 August.

On 13 August, Committee C presented a report (Port.) on whether to consider the 2018 budget proposal under an urgent schedule. After discussion, the Parliamentary Plenary accepted the recommendation on a vote of 40 in favor, 0 against and 20 abstentions. Fretilin explained why they abstained. The "urgent" schedule, which includes holidays on 22, 26 and 30 August, will be: